Trump says he will defer to Fed Chairman Kevin Warsh on rate hike before midterm elections

INVESTORS NOW THINK KEVIN WARSH WILL HIKE RATES BEFORE MIDTERM ELECTIONS

That marks a shift from Trump’s stance just months ago, when Jerome Powell was the central bank’s chairman.

Trump repeatedly assailed Powell for refusing to cut interest rates and ultimately replaced him with Warsh, who is now staring down 4.2% inflation, much of which has been caused by a recent spike in energy prices resulting from the Iran war.

Trump repeatedly and harshly criticized Powell, over the course of months, for declining to lower interest rates. Trump said the Fed needed to lower rates to make it easier for families to take out mortgages or auto loans. In selecting a new Fed chair, Trump made it clear he wanted someone who would be more eager to lower rates.

But he has so far given Warsh the latitude to conduct monetary policy as he sees fit. Trump backed off the hard line on interest rate reductions during another interview with the Washington Examiner just before Warsh entered office.

“I’m going to let him do what he wants to do,” Trump said in May, in response to a question about Warsh and market expectations for a rate hike. “He’s a very talented guy, he’s going to be fine, he’s going to do a good job.”

Also, during Warsh’s swearing-in ceremony, Trump further vowed to let the new chairman handle the Fed free of White House influence.

“I really mean this, I want Kevin to be totally independent,” Trump said. “Don’t look at me, don’t look at anybody, just do your own thing and do a great job, OK.”

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Warsh, 56, assumed the chairmanship at a difficult moment for the central bank. Inflation is still far too high, but the labor market is strong. The combination has made it increasingly likely that the Fed will raise rates — despite Trump’s stated desire for a rate cut.

As of Friday morning, the implied odds of a rate increase by the midterm elections are 70%, according to CME Group’s FedWatch tool, which calculates the probability of rate changes using futures contract prices for rates in the short-term market targeted by the Fed.